Expect no quick end to Canada-wide cannabis shortages, producers warn

The supply shortages that have plagued many provinces in the first month of legal cannabis will likely persist for years, industry insiders say.

Provinces including British Columbia, Alberta, Manitoba, Saskatchewan, Quebec, Nova Scotia and New Brunswick have all reported varying degrees of shortages.

New Brunswick was forced to temporarily close more than half its stores, while the Quebec Cannabis Corporation has reduced its store opening hours to four days a week. Labrador’s only legal cannabis store said it was forced to temporarily close after being without any product for nearly two weeks.

“Some licensed producers … have been unable to deliver the volumes that they had originally committed to,” said Kate Bilney, a spokeswoman for the British Columbia Liquor Distribution Branch.

Khurram Malik, CEO of the Toronto-based cannabis company Biome Grow Inc., said the lack of supply is due in part to the tough regulations imposed by Health Canada on the country’s 132 licensed producers, and the time required by companies to develop a quality and compliant product.

He said the federal department also took too long to approve licences.

“The rules here are so difficult to grow cannabis — quite frankly more difficult than anywhere else in the world — that if you’re a new licence holder and you’ve never done this before, it’s going to take you a year, year-and-a-half, or two years to get any decent, consistent quality product out the door in any predictable volumes,” said Malik, adding it’s much easier and cheaper to grow in jurisdictions such as California.

“The good thing with that is, yes, it makes things difficult domestically, but the rest of the world looks at us as outright experts in this. They say if you can grow in Canada, you can grow anywhere.”

Malik said he suspects some companies did stockpile cannabis leading up to Oct. 17, but logistics such as packaging and shipping have held up distribution as producers navigate the red tape of a brand new sector.

“There may be empty store shelves right now in various provinces, but there’s product sitting in vaults ready to move. That will clean itself out in the coming weeks,” said Malik, whose company has facilities under development in Ontario and Atlantic Canada.

“Once that’s out of the way, then you’re going to have intermittent shortages throughout 2019 and into 2020 as people produce and ship right away.”

Health Canada said it has taken steps to improve the licensing and capacity of producers, including increasing approved production capacity from 185,000 square metres to more than 1.2 million square metres since May 2017.

The department declined a request for an interview. But a statement from spokeswoman Tammy Jarbeau acknowledged that product shortages would likely continue “in the months ahead.”

“As with any new industry where there is considerable consumer demand, we expect there may be periods where inventories of some products run low or, in some cases, run out,” said Jarbeau in an email.

“Health Canada remains confident that there is sufficient supply of cannabis overall to meet market demand now and into the future.”

The department said given the long-standing prohibition of cannabis, there were no established benchmarks to precisely estimate demand levels, or to determine which products would be in high demand.

“As the overall supply chain gains experience in the Canadian marketplace, it is expected that such localized and product-specific shortages will become far fewer in number,” she said.

Brenda and Trevor Tobin, the mother-and-son owners of Labrador City’s High North, said demand at the store currently far outweighs the available supply.

The shop sold all of its cannabis in the first three hours on legalization day, and in the weeks following, products dried up for almost two weeks.

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Brenda Tobin said she continues to sell product faster than producers are able to deliver it. She said that has prompted some of her customers to buy cannabis illegally.

“A lot of them have said, ‘Well I guess it’s back to the black market’,” said Tobin. “We hate to hear that, but I’m assuming if they want their product, they’re going to get it one way or the other.”

She said product availability has also been restricted as producers send lists of available products, rather than the shop being able to request certain products, she said.

Authorities in B.C. and Alberta said licensed producers have not been able to deliver on the volumes they had originally committed to, but neither province provided specifics.

“While we forecasted and planned for this level of demand, we did not anticipate the supply challenges,” said Heather Holmen, manager of communications for Alberta Gaming, Liquor and Cannabis. “The shortage of product is a Canada-wide challenge.”

The Nova Scotia Liquor Corporation said it received less than 40 per cent of the product it ordered from 14 licensed producers in August, but was able to bring in inventory from a P.E.I. producer days before legalization to help address the shortage.

The shortages meant that three Nova Scotia cannabis stores closed early a few hours early on three occasions during the first week of legalization. There have not been any closures since then.

Cannabis NB said it received 20 to 30 per cent of its order for legalization day. It said 12 of the province’s 20 stores were forced to temporarily close in the last few weeks, but have all since reopened.

“Temporary closures are sometimes required to allow for new inventory to arrive,” Cannabis NB said in an email. “We expect supply levels to eventually normalize, however, the demand is consistent, and supply is a challenge.”

Meanwhile in Ontario — where its online store is the only way to legally purchase recreational cannabis until brick-and-mortar stores are put in place next year — the provincial ombudsman has received more than 1,000 complaints related to delivery delays, poor customer service and issues with billing.

Ontario Finance Minister Vic Fedeli said this week that the online Ontario Cannabis Store was returning to its original delivery time of one to three days, after receiving 200,000 orders since Oct. 17.

Ray Gracewood, chief commercial officer for the New Brunswick-based OrganiGram, said cannabis companies knew it would be a challenge to fulfil the demand during the first few months following legalization, and a shortage was inevitable as producers play catch-up.

“There’s a huge novelty factor and I think it probably has really captured the imagination of Canadians in general,” said Gracewood. “It’s a validation that Canadian consumers are willing to embrace regulated and legalized product.”

Gracewood said Canadian consumers have a whole new world of cannabis products to look forward to, and he expects producers will start developing product niches.

Ottawa has said it is aiming to make edibles containing cannabis and cannabis concentrates legal by next October.